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Drug Pricing Scenario

If you are working at Johnson & Johnson and one of your responsibilities is to set prices for new drugs.

The firm has invented a cure for Aids and is protected by patent. The cost for the one time injection that cures the disease is $100 and includes amortization of the development cost (The $1 billion cost to develop the product is included in the $100) and the cost raw materials. Assume that insurance companies currently spend $200,000 to treat an Aids patient. Assume 20% of the world population is covered by insurance or socialized medicine.

What price do you charge for the treatment? Defend your answer.

Consider all your stakeholders. (Including your stock holders, employees, etc.)
Don't try to quantify your answer. Just tell us what you think is right.

Solution Preview

Well, this is certainly interesting. Fortunately, Johnson and Johnson has a methodology they already use. Here, you are basically being asked to come up with it off the top of your head. I will give you my opinion on this, and a good dose of thinks to think about, but I'll let you arrive at the exact figure on your own (since that is what the assignment is for)

The first thing to consider is the cost of ...

Solution Summary

The solution takes a look at a drug pricing scenario. A price range is reccomended, and several factors that influence pricing in general were discussed in detail.

$2.19